Intrinsic Value Opportunity

The Intrinsic Value Opportunity strategy is unique as a long-only, concentrated, high conviction alpha generator. The portfolio is unconstrained and is comprised of 30 S&P 500 stocks. It is constructed using a fundamentals-based, bottom-up process to combine our Price/Intrinsic Value discipline in sleeves consisting of the ten most attractive stocks based on each of three factors: financial strength, profitability strength and market acceptance. The strategy is a disciplined and rules-based application of the firm's Price/Intrinsic Value philosophy, which is the basis for all of the firm’s strategies.

*The information shown in this chart is based on a representative portfolio and is supplemental to the Composite. Specific stocks discussed are included solely for illustrative purposes, and are not and were not recommendations for purchase or sale by investors. All or some of the specific stocks mentioned may have been purchased or sold by accounts within the Composite during the period, or since the period, and may be purchased or sold in the future. Investors should not construe any security result as predictive of future results. A complete listing of the holdings as of the period end is available upon request.

Todd Asset Management believes Price/ Intrinsic Value ("P/IV") is the most effective fundamental calculation to determine the true valuation of a stock. Combining P/IV with financial strength, profitability strength and market acceptance factors can trigger recognition of that value. We believe combining them in a rules based process should increase the probability of outperforming the Russell 1000 Value and the S&P 500 over the short and long term. The process is repeated quarterly to rebalance the portfolio.

This product is designed to take emotion out of the decision making process and invest without constraints in the stocks that show the most promise. It also provides a unique method of categorizing all the important variables our portfolio management team believes are critical in making a decision to buy or sell a stock.

Screening Process

Screening is a fundamentals-based, bottom-up process that is formalized in the combination of the firm's P/IV philosophy and factor-based stock selection. Fundamental research, using corporate financial reports, Internet sites, quantitative evaluations, Wall Street research and government reports, is a vital and ongoing part of the process.

The screening process starts with the stocks included in the S&P 500 Index. We can buy the largest cap or smallest cap stocks in that index; it is unconstrained in sector selection. We then identify a universe of attractively priced stocks using our P/IV calculation; generally this universe is the least expensive third.

Following the P/IV screening, we score the remaining stocks on each of three factors. The portfolio is comprised of the top ten ranked companies for each factor:

Financial Strength

Profitability Strength

Market Acceptance

Before finalizing a portfolio, we verify each of the inputs with a thorough fundamental review of each stock. We examine normal earnings to determine if they are appropriate, depending on the cyclical nature of the company. The long-term growth rate is scrutinized and compared with competitors and sustainable IRR growth rates, while keeping in mind the company's products and market placement. We review the internal quality rating to make sure it appropriately illustrates the type of risk/reward premium a stock needs for our valuation calculation. We also evaluate the company's fundamental outlook. After validating our P/IV and factor inputs, we assemble a portfolio using a Factor Ranking Model to select the ten most attractive stocks for each factor.

The time-valued judgement and nearly 30 years of average industry experience of our portfolio managers, tempers the inputs of our process with guidance as to which market conditions and research carry more or less importance.

Upon validation of each security's inputs, the portfolio purchase decisions are based fully on the results of the factor ranking output. Our portfolio managers adhere to the rules-based discipline except where account restrictions or the firm's sell discipline prompt substitutions/sale.

Portfolio Construction Methodology

At the start of each quarter when the portfolio is rebalanced, the Intrinsic Value Opportunity portfolio holds 30 equally weighted positions. The strategy is unconstrained with regards to market capitalization or sector. Our portfolio managers do not consider sector selection in building the portfolio; portfolio decisions are based fully on the results of the factor ranking output. We do not employ any type of derivative strategies.

The preferred benchmark is the Russell 1000 Value, but the S&P 500 is also acceptable.

Risk Management

An experienced portfolio management team, sharing a common set of core beliefs and having the ability to recognize the underlying drivers for growth and value in individual stocks, are the centerpiece of our strategies. We couple this with buy and sell disciplines based on valuation and fundamentals for all of our strategies to limit the risks inherent in stock selection.

Our buy-side risk control measures include:

Attractive P/IV

High-quality portfolio with a bias for large-cap stocks

Quarterly rebalancing of the portfolio

Our sell discipline is also a vital risk control measure. There are two levels of urgency for selling that can best be described as discretionary and mandatory:

A stock is reviewed for potential sale or position reduction when it underperforms the Russell 1000 Value by 10% or if it rises into the top third of the universe by valuation.

A stock is a mandatory sale when it underperforms the Russell 1000 Value by 20%.

If a stock rises into the top third of the universe by valuation, it is reviewed by the portfolio management team for potential sale.